The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that compensation received under a statute for cancellation of coal blocks/mines vide an order of the Supreme Court, cannot be considered as a taxable service of tolerating a situation and is thus not exigible to Service Tax.
The Bench, consisting of members P.K. Choudhary (Judicial Member) and P.V. Subba Rao, (Technical Member), held that the question of tolerating something and receiving a compensation for such tolerance pre-supposes that the person had a choice to either tolerate or not tolerate, and that the person chose to tolerate. The CESTAT added that the appellant had not chosen to tolerate the cancellation since the cancellation was in pursuance of the order of the Supreme Court and not as a result of a contract to tolerate cancellation.
The appellant M/s. Jindal Steel & Power Ltd. was allocated a coal block/mine. The Supreme Court vide its 2014 order, cancelled the allotment of certain coal mines, one of which was the coal mine allocated to the appellant. Subsequently, the Coal Mines (Special Provisions) Act, 2015 was passed, which provided for the manner of subsequent allocation of rights over the said cancelled coal mines.
As per Section 16 of the Coal Mines Act, at the time of re-allocation of the cancelled coal blocks, the prior allottees were to be compensated for the transfer of right, title and interest in the land and mine infrastructure to the successful bidder. The appellant thus received an amount as compensation in respect of the said land and mine infrastructure.
Subsequently, the appellant received a show cause notice, alleging that since the compensation was received by the appellant for tolerating the act of cancellation of the coal blocks by the Ministry of Commerce, Government of India, Service Tax was leviable on the said consideration received by the appellant.
The appellant Jindal Steel & Power Ltd contended before the authorities that there was no rendition of service by the appellant to the Ministry of Commerce, Government of India, and thus the compensation received by it was not a consideration which attracted Service Tax.
The Principal Commissioner passed an order confirming the demand raised in the Show Cause Notice, on the ground that the appellant had tolerated the act of cancellation of the coal mine and had received the amount of compensation in lieu thereof, which was a declared service under Section 66E(e) of the Finance Act, 1994. Against the order of the Principal Commissioner, Jindal Steel & Power Ltd filed an appeal before the CESTAT.
The CESTAT held that the question of tolerating something and receiving a compensation for such tolerance pre-supposes that the person had a choice to either tolerate or not tolerate, and that the person chose to tolerate. Additionally, the CESTAT added, such a tolerance must be a consideration as per an agreement to tolerate and the tolerance must be a taxable service.
The CESTAT ruled that none of the above elements were attracted to the case of the appellant since the appellant had no choice of either tolerating or not tolerating the cancellation. The CESTAT added that the appellant had not chosen to tolerate the cancellation since the cancellation was in pursuance of the order of the Supreme Court and not as a result of a contract to tolerate cancellation.
The CESTAT held that compensation was provided to the appellant under a statue for the investment made in the mines by the appellant and that there was no consideration for tolerating the cancellation of coal mines.
The CESTAT ruled that the cancellation of coal blocks and receipt of compensation by the appellant were by operation of law, and they cannot be considered as taxable services of tolerating a situation.
"Both the cancellation of the allocation of the blocks and the receipt of compensation are by operation of law. They are like the receipt of a compensation when one's land is acquired by the Government in public interest or the payment to a Government employee of an amount equal to the salary for unused leave at the time of his/her retirement. It is unthinkable to say that the land-owner has tolerated the acquisition of his land as per an agreement and charge Service Tax on the compensation."
The CESTAT thus allowed the appeal and quashed the order of the Principal Commissioner.
Case Title: M/s. Jindal Steel & Power Limited versus Principal Commissioner of CGST & CX, Ranchi Commissionerate
Dated: 04.05.2022 (Kolkata CESTAT)
Representatives for the Appellant: Mr. Vishal Agarwal, Ms. Tuhina & Ms. Isha Shah, Advocates
Representative for the Respondent: S. Mukhopadhyay, Authorized Representative